Appetite for M&A activity in global life sciences and health care sector set to increase in the next three years, according to Deloitte survey

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New York, 1 October 2014 – M&A remains squarely on the agenda of global life sciences and health care companies, with 70 percent of companies (with yearly revenues of more than $10bn) stating they plan to undertake M&A activity in the next three years. This is according to a new report released today by The Economist Intelligence Unit (EIU) in collaboration with Deloitte Touche Tohmatsu Limited (DTTL) that found life sciences and health care companies are looking beyond familiar territory for progressive growth.

The M&A Trends in Life Sciences and Health Care report surveys 240 senior life sciences and health care executives working globally on the demographic, political and economic factors—that are driving life sciences and health care companies forward into new markets and new opportunities. The report found that while M&A activity is on the rise, companies are being more risk averse when considering potential deals.

“Worldwide, pressures of growing demand for health care services have created a perfect storm that is driving a need for new business models,” said Phil Pfrang, Financial Advisory Services Leader for the Life Sciences and Health Care industry group, DTTL. “There is no doubt that M&A activity has become a significant force shaping the global life sciences and health care industry. Given current economic and regulatory environments across regions, the need for heightened efficiencies and increased innovation in health care has never been greater.”

Competition drives acquisitions - Competitive pressures, as well as a desire to diversify portfolios, are the strongest motivators for companies embarking on mergers or acquisitions;

Economic factors and the regulatory environment are the most important considerations when companies evaluate new markets. When it comes to evaluating the potential of particular geographic markets as part of a growth strategy, 57 percent of respondents found economic and regulatory factors the most important. The flurry of recently announced cross-border M&A transactions would suggest tax considerations are also an important consideration in structuring transactions.

Patent expirations play a part - Almost half of pharmaceutical companies, cite patent expirations as a reason for M&A activity. As patents expire on top-selling drugs, pharmaceutical companies will need to either increase R&D or look to acquisitions, licensing or collaboration agreements to fill their product pipeline. In fact, 49 percent of pharmaceutical company executives surveyed indicate patent expiration was a motivating factor in their company’s M&A activity.

The North American life sciences and health care market remains the primary investment destination for the industry. Forty-four percent of global respondents indicated that North America will continue to be a priority market for acquisitions followed by Asia Pacific (24 percent) and Europe (18 percent).

Industry executives anticipate an increase in various forms of collaboration, particularly in the pharma sector, to help spread risk. In the U.S., health care reforms emphasis on shifting payment structures (i.e., moving from a fee-for-service reimbursement model to incentives for team approaches, lowered costs and increased quality) may make it hard for smaller companies to compete, thus driving an increase in collaborations. Sixty-one percent of pharmaceutical companies expect to enter into collaboration and licensing agreements within the next 3 years, slightly more than medical device companies (44 percent) that are also heavily dependent on R&D to fill their product pipeline.

“As the survey data indicates, companies are proceeding with care but it doesn’t mean they are sitting on the sidelines,” said Pfrang. “Keeping pace with the changes of the coming years will require alternative business models, additional skills, greater efficiencies, new paths to innovation and creative strategies for growth.”